What is ESG reporting, and why is it becoming important in accounting?

In brief:

• ESG reporting is becoming an essential component of corporate governance; new regulations require sustainability information to be included alongside financial statements.
• For accounting, ESG is not a separate topic but part of daily data and processes—energy consumption, employee data, investments, and risks are already largely within the scope of accounting.
• Even if the requirements do not currently apply to everyone, it is worth preparing now—especially for companies that collaborate with major market players or are planning for growth.

ESG is an acronym we hear increasingly often, not only in business but also in the public sphere. It is also highlighted as one of the key trends in accounting that requires attention. This is because it is beginning to affect a wider segment of society, and the established implementation deadlines are gradually approaching. But what exactly lies behind this acronym?

E (Environmental) – how a company impacts the environment (CO₂, energy, waste, etc.);

S (Social) – employees, working conditions, diversity, safety;

G (Governance) – corporate management transparency, ethics, risks.

ESG reporting, in turn, is a company's obligation to disclose information regarding its impact on the environment (Environmental), society (Social), and governance (Governance). It includes data on emissions, energy consumption, employee structure, internal policies, and risk management. At first glance, it may seem unrelated to accounting, but that is not the case. Let us take a deeper look at what lies behind ESG reporting and the role of the accountant in this process.

ESG regulation

One of the first European Union directives to mandate that companies report on sustainability was the NFRD (Non-Financial Reporting Directive). However, its requirements were expanded by another directive—the CSRD (Corporate Sustainability Reporting Directive). Its main addition is a broader range of companies required to report on sustainability and very specific standards for the content of the report (determined by the ESRS directive). Furthermore, companies must not only demonstrate their impact on the environment and society but also how ESG risks affect their own business. And that is not all.

EU Taxonomy Regulation determines which business activities are considered "environmentally sustainable" – a company cannot simply decide for itself that a process is green. However, EU directives and regulations are not laws in themselves; each member state has the opportunity to adopt and adapt them to its specific legal system. Consequently, in Latvia, the requirements for ESG reporting are set by the Law on Sustainability Information Disclosure, which is primarily based on all the aforementioned EU directives.

Although it may seem that everything is perfectly clear and strictly defined for legislators, these requirements are currently only in the implementation phase and apply to a small portion of companies.

Who is currently subject to ESG reporting?

Currently, this applies to two types of companies:

• Large companies with more than 250 employees, a turnover exceeding €50 million, or a balance sheet total exceeding €25 million.
• Listed SMEs – companies listed on the stock exchange that do not meet the criteria for a large company.
• For small businesses, these requirements are not currently mandatory, but if you collaborate with large companies, you may be required to prepare them.

If you have determined that you fall into one of these categories and are required to submit an ESG report, it is important to know when this must be done.

• Large companies must prepare the report for the 2026 financial year, to be published in 2027.
• For listed SMEs, the report must be prepared for the 2027 financial year, to be published in 2028.

What is ESG reporting in accounting?

With so many directives, laws, and deadlines, what does this have to do with accounting? In fact, the connection is very direct, as the CSRD directive makes the ESG report an official part of the annual report. Sustainability information must be included in the company's management report and will be verified by official authorities—it must be audited. Since the accountant is the one who prepares the company's annual report, it is essential to know what data is required and how it should be presented in the report.

While sustainability data was previously often just marketing slogans, PR, or subject to very loose interpretation, the new legislation will no longer allow this. ESG information must be of the same quality as financial data. Let us look at some of the items that must be included in the report and their data sources:

• Energy consumption – invoices and cost accounting records;
• Fuel consumption – transport cost accounting records;
• Number of employees – personnel and payroll records;
• Investments in sustainability – fixed asset accounting;
• Supplier structure – accounts receivable/payable data.

It may seem as though this sounds like a traditional financial report. However, financial reporting shows how a company has performed in the past in monetary terms. ESG reporting shows how a company impacts the environment and society, and how these factors will influence its future. Likewise, this report includes data such as pay gaps, corruption risks, and governance policies, which can only be partially expressed quantitatively.

ESG reporting is not just a new regulatory requirement, but a fundamental shift in corporate thinking and management. It is gradually becoming an integral part of financial and management processes, where the accountant's role is no longer limited to traditional data recording but also includes contributing to the quality, transparency, and compliance of sustainability data. Therefore, understanding ESG is no longer just an advantage—it is becoming a necessity for every company that wants to be prepared for future requirements.

Frequently Asked Questions (FAQ)

What is ESG reporting?

ESG reporting is a company's obligation to disclose information regarding its impact on the environment, society, and governance. It includes data on emissions, energy consumption, employee structure, internal policies, and risk management. In accordance with the requirements of the Corporate Sustainability Reporting Directive, ESG information is included in the company's management report and becomes an official part of the annual report.

Which companies in Latvia are subject to ESG reporting?

In Latvia, ESG reporting is gradually becoming mandatory for large companies and listed companies.

According to the requirements of the Sustainability Disclosure Law, it applies to companies that meet at least two of the following criteria:

• more than 250 employees;
• a turnover exceeding 50 million euros;
• a balance sheet total exceeding 25 million euros.

Large companies will be required to publish their first mandatory sustainability reports for the 2026 financial year (in 2027).

How is ESG data incorporated into accounting?

ESG data is collected and structured similarly to financial data. Some information is already present in accounting systems—for example, energy costs, fuel consumption, number of employees, and investments.

Accounting helps to:

• ensure data accuracy;
• document calculation methodology;
• prepare an auditable report.

The ESG report is being integrated into the management report and is gradually becoming subject to audit, which significantly increases the role of the finance function in this process.